Iceland: Let the Banks Fail

Banking is the one business that any rich person can start...because the only inventory needed is money.

Inquiring minds are wondering how much proof people need before they realize that banks and bankers need not be protected after reading “Iceland Is No Ireland…“. As Iceland’s President Olafur Grimsson said his country is better off than Ireland because it let the banks fail two years ago and because the krona was devalued:

“The difference is that in Iceland we allowed the banks to fail,” Grimsson said in an interview with Bloomberg Television’s Mark Barton today. “These were private banks and we didn’t pump money into them in order to keep them going; the state did not shoulder the responsibility of the failed private banks.”

As Ireland’s Prime Minister Brian Cowen discussed an 85 billion-euro ($112 billion) bailout with the European Union and International Monetary Fund, Mr. Grimsson decided to donate two cents:

“Iceland is faring much better than anybody expected,” Grimsson said. The Icelandic state’s liability on foreign depositor claims stemming from Icesave accounts at failed Landsbanki Islands hf should be put to a national referendum, he said.

“How far can we ask ordinary people — farmers and fishermen and teachers and doctors and nurses — to shoulder the responsibility of failed private banks,” said Grimsson. “That question, which has been at the core of the Icesave issue, will now be the burning issue in many European countries.”

Iceland is relying on a $4.6 billion IMF-led loan to rebuild its economy but Grimsson said the government may not need the entire amount.

Michael Derks, chief strategist in London at foreign-exchange firm FXPro, wrote:

“The taxpayer has no realistic prospect of being able to save their banks, such is the magnitude of their bad loans and their extraordinary dependence on central bank support. Both junior and senior bondholders in these insolvent banks need to suffer huge haircuts.”

“Forcing bond holders to “share the burden,” may help the euro region remain intact.”

That kind of says it all, doesn’t it?


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